As I’ve said before, the first step to rehabbing your finances is admitting you have a problem. And I know what you’re thinking. You’re thinking, okay Nicole, I’ve admitted it, I have a problem, I’m shouting it from the rooftops, but what happens now? Maybe the old you had some bad money habits, and you had to go back to square one. So… now what? Well, now we take the next step on the road to recovery. And what do you need on the open road? A map. A plan. So, let’s get started. We’re going to build a map in three steps.
Outline Your Goals
On a sheet of paper, you want to outline your goals for this new life you’re starting. I like to break these down in Year 1, Year 3, Year 5, Year 7 and Year 10. Then fill them in. Think about what you want to be doing, where I want to be doing it and who I want to do it with. Keep the acronym SMART-goal setting in mind. It stands for S – Specific, M – Measurable, A – Actionable, R – Realistic and T – Timely. The kicker here is “actionable and realistic.” Say that in order to get your dream job, you need to go back to school for a year. Say you do that Year 1, and by Year 3 you want to buy a house. Is that comfortably actionable? If you go back to school Year 1, you may have student loans at Year 3 that you need to focus on paying off before tying up your money in something big. Feel me?
Make Your Budget
My budget strategy is simple, it’s just 3 Es. Here’s how I break it down. Of what you’re spending, 70% should be on essentials (rent or mortgage, utilities, food, transportation, bills, insurances, loans payments); 15% should be on endgame (things for your future like taking that great trip, or having a sweet retirement); 15% should be on extras (the fun stuff, the eating out, or ordering in). Now calculate how much of your money is actually going to essentials, endgame and extras. The easiest place to start is to go through your statements. Now add up your essentials, endgame and extras. Next, take the total for one of these three categories, and divide that total by the total amount of money you make in a month.
Align Your Budget With Your Goals
If you did the math and you’re not getting 70% for essentials, 15% for endgame and 15% for extras, go back and see why that might be. Maybe your transportation costs are 0 right now because you’re not taking the subway to work. Deviating from the three Es only works if there’s a give and take, so see where you want to trim financial fat and where you may want your wallet to put on some weight. Facing the music can be tough. You may realize you’re going to have to make some compromises you didn’t see coming.
Remember that when making your budget, outline realistic goals that will set you up to achieve them. You will be so proud when you do it. While, on the other hand, super ambitious goals that aren’t as realistic, sets you up for disappointment. And when you miss one milestone, you feel defeated, start making bad money decisions, and scrap the whole ten-year plan. Trust me, I’ve seen it.Remember that when making your budget, outline realistic goals that will set you up to achieve them. You will be so proud when you do it. Click To Tweet
A version of this article was originally published on Forbes.